How does education affect the economy?
How is a country's education system related to its economic performance? Why do most workers with degrees earn more than those without? Understanding how education and training interact with the economy can help explain why some businesses and economies thrive while others falter.
As the supply of labor increases, wages are pressured to fall at the same level. If employers' labor demand does not keep pace with labor supply, then wages usually fall.
Labor force growth is particularly harmful to new workers in fields where entry barriers are low, meaning that no education or training is required. On the contrary, industries that require high knowledge and higher education pay higher wages to workers. The reason for this is that the number of educated people who can work in that field is small and the necessary education requires significant expenses.
How does education affect countries?
Globalization and international trade require countries and their economies to compete with each other continuously. Countries that are considered economically successful will have competitive and comparative advantages compared to other economies. A country's workforce and education is a key factor in determining how well a country's economy will perform.
Employees, in turn, increase their earning potential by developing and improving their skills. The more they know about a particular job function, industry situation, the more valuable they will be to an employer.
Many countries are paying more attention to the development of an education system that produces workers who can operate in new industries such as science and technology. The main reason for this is that old industries no longer have a competitive advantage in developed countries and have lost their dominance in the market.
As the proportion of educated workers increases, a country's economy becomes more productive because educated workers can more effectively perform tasks that require literacy and critical thinking. Countries with a higher proportion of their population attending and graduating from school experience faster economic growth than countries with less educated workers.
For businesses, an employee's intellectual capacity can be treated as an asset and this asset can then be used to create products and services that can be sold. The more well-trained workers a firm employs, the more that firm can theoretically produce.
Like any decision, investing in education creates opportunity costs for the employee. Hours spent in the classroom mean less time to work and earn an income. However, employers pay higher wages when the duties required to complete a job require a higher level of education. In other words, in the short term, a worker's income may be lower due to the time spent on training, but the salary offered to him after the training will be higher.
The knowledge and skills available in the labor supply of workers are key factors in determining both business and economic growth. Economies with significant skilled labor can often capitalize on this by developing more value-added industries, such as high-tech manufacturing.
Besides raising productivity and creativity, education tends to stimulate entrepreneurship and technological development. Education is a natural resource for countries, as all these significantly increase the country's economic power.
For this reason, countries must ensure through legislation and work programs that all their citizens have access to education and training that can improve workers, companies and the entire economy.
